Ø The amendments in the MSMED Act to facilitate
growth and development of MSME sector
·
Parliamentary
approval: The Micro, Small and Medium Enterprises
Development (Amendment) Bill, 2026 was passed by the Lok Sabha on 7 August 2026,
after being passed by the Rajya
Sabha on 3 August 2026.
·
20
years of MSMED Act: The
MSMED Act, enacted in 2006,
has completed 20 years. The amendments respond to technological changes,
IT-enabled systems and the evolving legal and business environment.
·
Rapid
MSME formalisation: MSMEs
registered on the Udyam
portal have increased from 1.65 crore on 1 April 2023 to 9.16 crore
currently.
·
Employment
contribution: The
MSME sector provides employment to over
40 crore people and is described as a backbone of the Indian
economy.
·
MSME
classification incorporated in law:
The twin criteria of investment
in plant/machinery and turnover have been incorporated into the
Act.
·
Udyam
Registration made permanent:
The Udyam Registration
Portal is provided statutory permanence as a digital, free and voluntary
registration platform.
·
Online
dispute resolution: Online Dispute Resolution (ODR)
has been introduced to enable Micro and Small Enterprises (MSEs) to resolve
payment disputes more quickly and cost-effectively.
·
50%
payment protection: Where
an application to set aside a decree, award or order remains pending for more
than six months,
courts are mandated to order payment of at least 50% of the awarded amount
to the MSE supplier.
·
Time-bound
mediation: MSE
Facilitation Councils (MSEFCs) or mediation service providers must complete
mediation within 90 days
from the date fixed for first appearance.
·
Arbitration
deadline: If
mediation terminates without settlement, the MSEFC must refer the matter for
arbitration within 30 days.
·
Time-bound
arbitral award: The
MSEFC or relevant alternative dispute resolution institution must make the
award within 90 days of
completion of pleadings.
·
Stronger
recovery mechanism:
Mediated settlements and arbitral awards under Section 18 can be recovered as arrears of land revenue
through the District Collector, Deputy Commissioner or notified authority where
the buyer's assets are located.
·
Mandatory
TReDS routing for CPSEs: Central Public Sector Enterprises
(CPSEs) will route invoice settlements for procurement from
MSMEs through the Trade
Receivables Discounting System (TReDS).
·
States
empowered regarding PSEs:
States receive an enabling mechanism to encourage their Public Sector
Enterprises to use TReDS for invoice settlement.
·
TReDS
expansion:
Invoice discounting through TReDS increased from ₹40,000 crore in 2022-23 to
₹3.47 lakh crore in 2025-26.
·
More
MSEFCs: The
composition of MSEFCs has been rationalised, enabling State Governments to
establish multiple
Facilitation Councils for faster disposal of delayed-payment
disputes.
·
State
rule-making power: State
Governments are empowered to make rules relating to MSEFCs.
·
Decriminalisation: The amendments replace several
conviction-based offences and fines with graded
civil penalties.
·
Wrong
information:
Furnishing incorrect information will attract a warning for the first instance, followed by
a penalty for subsequent instances.
·
Non-disclosure
by buyers:
Conviction and fines for non-disclosure of unpaid MSME dues with interest in
annual accounts are replaced by:
o First instance: Warning
o Second instance: Penalty
o Third and subsequent instances: Fine
·
Trust-based
regulation: The
changes aim to promote Ease
of Doing Business, reduce criminalisation of regulatory
defaults and establish a more trust-based MSME regulatory environment.
The
MSMED Amendment Bill, 2026 strengthens MSME formalisation, accelerates recovery
of delayed payments, mandates greater use of TReDS by CPSEs, enables more MSE
Facilitation Councils and decriminalises several compliance-related offences,
with the objective of making MSMEs stronger engines of employment and growth
under Viksit Bharat @2047.
<MSMED (Amendment) Bill, 2026>
The Micro, Small and Medium Enterprises
Development (Amendment) Bill, 2026, was passed by the Lok Sabha on 7th
August, 2026, subsequent to its passing by the Rajya Sabha on 3rd August,
2026. The Micro, Small and Medium Enterprises Development Act (MSMED Act) was notified
in 2006 and has completed 20 years of its enactment. Over the years, the MSME landscape
has witnessed rapid changes due to technological advancements, emergence of IT enabled
systems and changing legal landscape, which required that the MSMED Act be amended
to facilitate growth of MSMEs. The number of MSMEs registered on Udyam have increased
from 1.65 crore as on 01.04.2023 to 9.16 crore now. MSME sector provides employment
to over 40 crore people and is considered to be the backbone of Indian economy.
The amendments in the MSMED Act have been
done to strengthen the legal framework governing the development of MSME sector,
improving the ease of doing business, creating an enabling business environment
through decriminalisation, providing institutional mechanisms for promotion of MSMEs
and addressing delayed payment issues faced by the Micro and Small Enterprises.
The following are the salient features
of the amendments done in the MSMED Act:
i. To align the Act with changing MSME landscape: MSME classification based on twin criterion
of “Investment in plant/machinery” and “Turnover” has been incorporated in the Act.
The Bill provides permanence to the Udyam Registration Portal as a Digital, free,
and voluntary registration platform for MSMEs. The registration for MSMEs is voluntary.
ii. To strengthen the mechanism for addressing
Delayed Payments and provide for enforcement of arbitral awards for the MSEs: The amendment provides for Online Dispute
Resolution to ensure that MSEs are able to resolve their disputes in a timely and
cost-effective manner. It mandates the courts to order for payment at least fifty
per cent. of the awarded amount to the micro and small enterprises suppliers, if
the application to set aside decree, award or order is pending for more than six
months.
iii. To ensure faster adjudication of delayed
payments disputes: The amendment introduces timelines to ensure faster adjudication of delayed
payment disputes. Under the amended provisions, the MSEFCs or mediation service
provider, as the case may be, is required to complete the mediation within a period
of ninety days from the date fixed for first appearance. Thereafter, the MSEFCs
are required to refer the matter for arbitration within a period of thirty days
from the date of termination of mediation. Subsequently, the MSEFCs or any institution
or centre providing alternative dispute resolution services, as the case may be,
is required to make the award within a period of ninety days from the date of completion
of pleadings.
iv. To strengthen recoveries of dues: Under the amended Act, any mediated settlement
agreement or arbitral award made by the Facilitation Council, or through a mediation
service provider or any alternative dispute resolution institution under Section
18, can be recovered as an ‘arrear of land revenue’ through the District Collector,
Deputy Commissioner, or any notified authority in the jurisdiction where the buyer's
assets are located.
v. To facilitate faster payments to MSMEs:
All Central Public Sector
Enterprises (CPSEs) to route the settlement of invoices through a Trade Receivables
Discounting System Platform (TReDS) for procurement of goods and services from MSMEs.
The amendment also provides an enabling mechanism for States to nudge their PSEs
to avail invoice settlement through TReDS. It is pertinent to note that TReDS has
emerged as an institutional platform to provide additional liquidity and ensuring
timely payments to the MSMEs. The volume of invoice discounting on TReDS has increased
from Rs. 40,000 crore in 2022-23 to Rs. 3.47 lakh crore in 2025-26. The compulsory
routing of invoice settlements by CPSEs will further mitigate the payment issues
of MSMEs.
vi. To introduce flexibility and create enabling
provisions for States to decide composition of Micro and Small Enterprises Facilitation
Council (MSEFC) thereby forming more MSEFCs: The composition of MSEFCs has been rationalized to
enable State governments to establish multiple MSEFCs for faster disposal of disputes
regarding payments due to MSEs. The amendment also empowers the State Governments
to make rules for MSEFCs.
vii. To enhance the Ease of Doing Business
and bring trust-based regulations in the MSME ecosystem: The amendment provides for decriminalisation
and replaces conviction-based fines with graded civil penalties. Earlier, under
the MSMED Act, non-filing of registration or non-supply of information was penalised
with conviction and a fine. Now, under the amended provisions of the Act, the penal
provisions have been decriminalised. In the instances of furnishing wrong information,
a warning will be issued in the first instance, and a penalty will be levied in
case of second and subsequent instances. The conviction and fine for non-disclosure
of unpaid amounts with interest in annual accounts by buyers has been replaced with
a warning on the first instance, a penalty for the second instance, and a fine for
the third and subsequent instances. It promotes Ease of Doing Business and fosters
a trust-based regulatory environment.
These amendments are in line with the
Government's commitment to the vision of Viksit Bharat @2047. A vibrant
MSME sector is the key for achieving inclusive, sustainable and employment-intensive
economic growth. The amendment of MSMED Act will boost formalisation of enterprises,
provide pathway for scaling-up of MSMEs, enabling them to become Champions of growth.
This will also augment Ease of Doing Business and promote compliance.